Pages

Thursday, October 25, 2012

Book Review: The Business of Healthcare Innovation

The Business of Healthcare Innovation, a new book edited by my friend Lawton Burns of the Wharton School, is a highly-recommended examination of four major business sectors developing innovative healthcare products—pharmaceuticals, biotechnology, medical devices, and information technology.

The second edition brings the analyses (mostly) up-to-date, so it’s a worthwhile and cost-effective purchase, even if you already own the 2005 edition. The chapter on mergers and acquisition is particularly useful. Experienced executives will appreciate the book’s focus on the big picture ideas, while everyone else will benefit from the broad strategic perspectives on each sector.

Read on for my review.
Each sector receives a chapter-length analysis that includes market structure, key players, product development, commercialization, alliances, business strategy, and growth prospects. The pharmaceutical and biotechnology sectors each have an additional analytic chapter. Here are the chapters:

The business of healthcare innovation in the Wharton School curriculum

The pharmaceutical sector: rebooted and reinvigorated

Pharmaceutical strategy and the evolving role of merger and acquisition

The biotechnology sector: therapeutics

Biotechnology business and revenue models: implications for strategic alliances and capitalization

The medical device sector

The healthcare information technology sector

Healthcare innovation across sectors: convergences and divergences

I particularly enjoyed Chapter Three. The authors ask whether mergers and acquisitions among pharmaceutical manufacturers are “…short-term fixes to the current challenges or serve as long-term solutions that will challenge the productivity frontier.” As the exhibit below shows, the number of transforming mergers—deals worth more than $500 million—has grown sharply over the past 20 years.

This chapter provides a fantastic historical perspective on this trend and the various deal rationales cited by pharmaceutical companies. The authors then examine the academic evidence with a detached, clear-eyed view. Alas, the evidence seems very mixed and even slightly negative. As the authors note: “Firm scale has little relationship with R&D intensity (inputs) and, at best, a small impact on R&D productivity (outputs)—arguably the two industry value drivers.” Hmmm.

The final chapter provides a nice capstone by looking at the dual challenge faced by all four sectors: “the invention of new technology and assuring its long-term clinical adoption by customers.” The discussion is framed around technological convergence—the development of products combining multiple technologies. Imagine new drug-device therapies or the smartphone-enabled medical devices.

There are a few drawbacks to this otherwise valuable book. As an edited collection, the book suffers from the lack of an integrated, coherent narrative viewpoint. The quality of individual chapters also varies. All chapters tell a “big picture” story, but some get mired in less-interesting (and rather basic) foundational material. And due to its academic publishing schedule, certain sections of the book are dated. Many data series only go through 2009 or 2010, and there are only two brief references to the Patient Protection and Affordable Care Act (PPACA).

Despite these minor reservations, I highly recommend The Business of Healthcare Innovation for anyone who wants to step back from the day-to-day and reflect on manufacturers’ strategic challenges.

DISCLAIMERThe analyses on this website are based on information and data that are in the public domain. Any conclusions, findings, opinions, or recommendations are based on our own experienced and professional judgment and interpretations given the information available. While all information is believed to be reliable at the time of writing, the information provided here is for reference use only and does not constitute the rendering of legal, financial, commercial, or other professional advice by Pembroke Consulting, Inc., Drug Channels Institute, or the author. Any reliance upon the information is at your own risk, and Pembroke Consulting, Inc., Drug Channels Institute, and the author shall not be responsible for any liability arising from or related to the use or accuracy of the information in any way. Pembroke Consulting, Inc., and Drug Channels Institute do not make investment recommendations, on this website or otherwise. Nothing on this website should be interpreted as an opinion by Pembroke Consulting, Inc., Drug Channels Institute, or the author on the investment prospects of specific companies.

The comments contained on this site come from members of the public and do not necessarily reflect the views of Drug Channels Institute or the author. Neither Drug Channels Institute nor the author endorse or approve of their content. Drug Channels Institute and the author reserve the right to remove or block comments, but are under no obligation to explain individual moderation decisions.

The public domain use of our materials includes linking to our website. You do not need to obtain special permission to link to the Drug Channels site. The material on this site is protected by copyright law. Unauthorized reproduction or distribution of this material may result in severe civil and criminal penalties and will be prosecuted to the maximum extent of the law. This report may be cited in commercial documents with full and appropriate attribution. We do not intend to reduce, limit, or restrict any rights arising from fair use under copyright law or other applicable laws. We do not permit our articles to be republished without prior written permission.

The content of Sponsored Posts does not necessarily reflect the views of Pembroke Consulting, Inc., Drug Channels Institute, or any of its employees.